How it works
English only for early access. The calculator itself runs in English, Icelandic and Polish.
Iceland collects income tax monthly, at source — staðgreiðsla (withholding). Every spring, the tax authority recomputes the finished year in one pass — álagning (assessment) — and the difference becomes a bill or a refund. Skattaskýr exists to make that difference visible before it happens, and to explain it line by line.
1. The promise: pay-as-you-go that should net to zero
Each month, each employer independently computes tax on the pay it gives you, as if that monthly pay were your steady rate all year, and subtracts the slice of your personal credit (persónuafsláttur) you assigned to it. The design bet: if your income were steady and single-source, the twelve monthly withholdings would sum to exactly your annual tax — nothing to settle. The year-end gap is the accumulated error when reality breaks that bet.
2. The three monthly levers
- Monthly bracketsapplied to that employer's pay alone, at the combined rate — national rate plus the averageútsvar, not your municipality's actual rate.
- A monthly credit quota: your assigned credit fraction × the monthly persónuafsláttur.
- Accumulation: credit an employer could not use in a month carries forward — but only within that employer.
One steady employer applying your full credit makes the monthly estimate equal the annual truth. Anything else makes them diverge.
3. Why it diverges
Withholding is a sum of local estimates — per employer, per month. Álagning is the single correct annualcomputation. The gap is caused by anything that makes "this month at this employer" a bad proxy for "my whole year":
- Two steady jobs → usually a debt. Each employer sees only its slice and withholds in the low monthly bracket, but your aggregate income crosses into a higher annual bracket. Each withholds too little; you owe in May.
- Seasonal peaks → usually a refund. A high fishing month is taxed at a higher monthly bracket, as if you earned that much every month. If your annual average is lower, álagning recomputes on the smaller base and the overshoot comes back. Over-withholding is not a loss — it is an interest-free loan to the treasury until the following June.
- A poorly split credit over- or under-withholds all year; álagning applies the full annual credit to your total income regardless.
- Your municipality: withholding uses the national average útsvar; your real rate applies only at álagning.
4. Extra pay settles three times, on three clocks
The widespread feeling that "beyond some threshold, if I work more they take it away" conflates three different flows:
- Now — this month's payslip. Extra hours can push the month into a higher withholding bracket. Often this is timing, not loss: a high month in a low year comes back at álagning.
- Next May — álagning. The real tax on your annual total. This is where the truth lives.
- Next year — benefits. Child benefit and housing support are income-tested: they shrink by 4–11% of each króna above a threshold, paid out a year later — so the reduction is almost never attributed to the extra hours that caused it.
The Extra hourspanel in the calculator prices each flow separately for your actual situation, and says plainly when the "loss" is only timing.
5. Fees that are never withheld
Two flat annual levies — útvarpsgjald (broadcasting fee) and the Elderly Construction Fund fee — are charged at álagning but never withheld monthly, only between ages 16–69 and above an income threshold. They surprise people every May. The year-end card lists them by name, with their statutes, and says why when they are not charged.
6. The union fee — on your payslip, but not a tax
Nearly every Icelandic payslip carries a félagsgjald (union fee), typically 0.7–1% of gross — VR and Efling charge 0.7%, many general unions 1%. It is set by your union and the collective agreement, not by tax law, and it is never deductible: Skatturinn computes your tax as if it did not exist, both in monthly withholding and at álagning. It changes no bracket, no credit, no benefit.
Because over 90% of employees pay it, the calculator includes it by default at 1% so the headline figure matches a real payslip; the exact rate (or 0) is yours to set under More details. It is the one line of the result computed in your browser rather than by the tax engine — it is arithmetic on top of the tax result, not part of it. If our figure and your payslip disagree by about 1% of gross, check this line first.
7. What the engine is
- A faithful, stateless implementation of the rules above: requests are computed in memory and discarded — no accounts, no stored inputs. Your scenario lives only in your URL fragment, which never reaches our server.
- Every parameter (brackets, credit, tapers, levies) comes from a sourced file — see Sources — and the year-end arithmetic is shown line by line in the app, not asserted.
- Where statute and published administrative practice conflict, the engine follows the figures payments actually use, and the app says so where the figure appears (disclaimer, §3).
Skattaskýr is educational — it is not Skatturinn, and never tax advice. The numbers are not a tax assessment.